Chapter 3:

MARKET
INTEGRATION
 MARKET INTEGRATION
Market integration is the fusing of many markets into one.

According to Cambridge Business English Dictionary, Market Integration is a situation in which

separate markets for the same product become one single market for example when
an import tax in one of the market is removed.

Integration is taken to denote a state of affairs or a process involving attempts to combine

separate national economies into larger economic regions (Robson, 1998, p.1).

In business, market integration occurs when prices among different locations or related goods
follow similar patterns over a long period of time. Groups of goods often move proportionally
to each other and when this relation is very clear among different markets it is said that the
markets are integrated. Thus, market integration is an indicator that explains how much
different markets are related to each other.
 HISTORY
After the Second World War, almost all
countries around the world faced the
great challenge of bringing their feet back
on the ground. As a substitute to the
unsuccessful League of Nations, the
United Nations (UN) was established on
October 24, 1954. Primarily, it was
tasked to promote international
cooperation and to restore international
order.
THE UNITED NATIONS

The United Nations is an

intergovernmental organization aiming to
maintain international peace and security,
develop friendly relations among nations,
achieve international cooperation, and be
a centre for harmonizing the actions of
nations. It is the world's largest and most
familiar international organization.
 BRETTON WOODS MONETARY CONFERENCE

Earlier in 1944 at the Monetary and Financial Conference in Bretton Woods, New Hamsphire (US), the first government-sponsored
international financial institutions were established – the World Bank and the International Monetary Fund.
 TYPES OF INTERNATIONAL FINANCIAL
INSTITUTIONS

INTERGOVERNMENTAL PRIVATE

Example: World Bank

IMF
 01
INTERGOVERNMENTAL
INTERNATIONAL FINANCIAL
INSTITUTIONS
THE WORLD BANK

An international financial institution

that provides loans and grants to the
governments o f lo w and m id d le-
income countries for the purpose of
pursuing capital projects
THE WORLD BANK
AIM: To end extreme poverty and promote
shared prosperity in a sustainable way
(wolrdbank.org).

There are five organizations that belong to the

WB Group, namely:
1. International Bank for Reconstruction and
Development
2. International Development Association
3. International Financial Corporation
4. Multilateral Investment Guarantee Agency
5. International Center for Settlement and
Investment Disputes
 INTERNATIONAL MONETARY FUND (IMF)

The IMF, also an intergovernmental institution,

works to foster global monetary cooperation,
secure financial stability, facilitate international
trade, and more (imf.org/en/About). Like the WB,
it also grants financial assistance and loans to
developing countries.
INTERNATIONAL MONETARY FUND (IMF)
The IMF is headquartered in Washington, D.C., consisting of 190 countries
"working to foster global monetary cooperation, secure financial stability,
facilitate international trade, promote high employment and sustainable
economic growth, and reduce poverty around the world.

Functions:
• Surveillance of the global economy - The IMF is mandated to oversee
the international monetary and financial system and monitor the economic
and financial policies of its member countries;
• Conditionality of loans - IMF conditionality is a set of policies or
conditions that the IMF requires in exchange for financial resources. The
IMF does require collateral from countries for loans but also requires the
government seeking assistance to correct its macroeconomic imbalances in
the form of policy reform. If the conditions are not met, the funds are
withheld;
• Structural adjustment - Cutting expenditures or raising revenues;

Benefits:These loan conditions ensure that the borrowing country will be

able to repay the IMF and that the country will not attempt to solve their
balance-of-payment problems in a way that would negatively impact the
international economy.
These two are intergovernmental financial
institutions that were created to spur social
progress and economic growth to address and
reduce poverty. As financial institutions, ADB
and AfDB are anchored on the global of
fostering sustainable development in
their respective member countries.

This module examines how the

global market becomes coherent through
global corporations and international
financial institutions.
 02
PRIVATE
INTERNATIONAL
FINANCIAL
INSTITUTIONS
Citigroup and Merrill Lynch

There are also private international financial institutions such as Citigroup and
Merrill Lynch.

Citigroup is an American multinational investment banking and financial corporation. It

is the fourth largest bank in the US (citigroup.com).

On the other hand, Merrill Lynch is the wealth management division of the Bank of the
America. Both institutions provide investments around the world. Investments can
be in the form of foreign direct investments, stocks, or financial loans.
 GLOBAL
MARKET
INTEGRATION
 GLOBAL MARKET INTEGRATION

Global Market integration means that price differences between countries are eliminated as
all markets become one.

Example: In one market a commodity has a single price such as the price of rice would be the
same in southern and northern Luzon if these areas were part of the same market. If the price in
Southern Luzon was higher, seller of rice would move from North to South and prices would
equalize.

World Economies have been brought closer by globalization. It is the reflected in the phrase–
“when America sneezes, the whole worldcatches a cold.” It is important to remember though that
it is not only the economy of the United States but also other economies in the world that have
significant impact on the global market and finance.The strength of a more powerful economy
brings greater effect on other countries. In the same manner, crises on weaker economies have
less effect than other countries. Although countries are heavily affected by the gains and crises in
the world economy, organizations that they consist also contribute to these events.
 GLOBAL MARKET INTEGRATION
Both intergovernmental and private financial institutions help facilitate the
functionality of a global economy by lending money to their members states and
global corporations. For example, the World Banks helps in project lending, establishes
structural reforms, provide support and technical assistance, and helps design modern and
durable social safety nets for the benefit of both developed and developing nations (Stiglitz,1998).

It also provides international capital like foreign direct investments, short-term capital, and
long-term investments. The International Monetary Fund, on the other hand, helps establish
institutional bodies to address and reduce poverty like the African Regional Technical Centers
(AFRITACs) in 2001, and assists in creating the conditions for mobilization of private domestic
and foreign capital and job generation growth (Kohler, 2002). Moreover, the Asian Development
Bank lends money for the building of infrastructures that leads growth in business
(Oxfam.org.au,2013). Clearly, these global institutions are active agents in fostering social and
economic development by providing various forms of help to improve the national and the global
economics.
 GLOBAL MARKET INTEGRATION

Global market integration did not happen overnight. It was the result of the establishment of a
global economy that involved the homogenization of trade and commerce. Prior to the trends in
globalization of the 20th century, international trade and exchange of goods and services were
already practiced. Harvey (1990) sees that city and countries were able to extend their
reach beyond borders and patterns of trade and technology because of developments
in shipping and navigation. This was observable in the development of maritime transport
throughout history. Colonialism and imperialism rose as the new ways of putting order to the
economic interrelationships among countries. Equity, corporate ownership, management
subsidiaries, and central headquarters which supply and distribute goods and services were
established through colonialism. The Spanish government in the 1960s, for instance made use of
its colonies like the Philippines and Mexico as suppliers of it resources for trade.
 GLOBAL MARKET INTEGRATION

The integration of the global market started when big American corporations began to emerge
after the Second World War with the rise of new conglomerates1 International Telephone and
Telegraph bought Avis Rent-a-Car, Continental Banking , Sheraton Hotels , and Hartford Fire
Insurance (American History, 2018). Later, Japan and Europe followed suit. Japanese global
automobile corporations like Toyota, Nissan, and Isuzu took off after the giant American
companies flourished. These companies prospered as the primary and global makers of trucks for
Japanese military (Dower, 1992 ). Renault automobiles , a French multinational automobile
manufacturer, was also used to help in the military post-war operations. The rise of American,
Japanese, and European global corporations paved the way for the further
development of international trade.

1- Conglomerate. A conglomerate is a multi-industry company – i.e., a combination of multiple business entities operating in entirely different industries under one
corporate group, usually involving a parent company and many subsidiaries. Conglomerates are often large and multinational.
 Differences among international, multinational,
transnational, and global companies:
Iwan (2012) identifies the differences among international, multinational, transnational, and global
companies:

• International companies are importers and exporters with no investments outside their home
countries.

• Multinational companies (MNCs) have investments in other countries, but do not have coordinated
product offering in each country. They are more focused on adapting their products and services to
each individual local market.

• Global companies have investments and are present in many countries. They typically market their
products and services to each individual local market.

• Transnational companies (TNCs) are more complex organizations that have investments in foreign
operations, have a central corporate facility but give decision-making, research and development, and
marketing powers to each individual foreign market.
INTERNATIONAL COMPANIES
An international company is involved in exporting and selling its goods and/or
services to other nations, but other than exporting (and/or importing, such as
purchasing raw materials), has no other investment in these other nations. All
of the business functions and headquarters remain in the country of origin,
and there are no branches of the company overseas in any of the nations the
business trades with. This allows a company to streamline its decision-making
process, and saves the business the cost and hassle of establishing offices
around the world, but can also cause the company to struggle with a lack of
understanding of these particular global markets.

Nike started as an international

Apple is a company that produces
business, although it may be
consumer electronics such as computers,
considered a global company at
tablets, mobile phones, etc. Apple sells
this point. Decisions for the Nike
its products around the world, but the
brand are all made within the
headquarters and all product
U.S., and Nike products are
development are located within the U.S.
exported to other nations.

Any small local business who may purchase materials from, or sell products to,
other countries is technically an international business.
MULTI-NATIONAL COMPANIES (MNCs)

A multinational company has establishments in the nations it

chooses to operate in, not just sales. The company will choose to
establish branches and operations in these nations, to oversee the sales
and/or importing from that particular country. Multinational companies
normally have fewer countries of interest than a global company might,
mainly because of the way they manage their local offerings.

In a multinational company, there is still a central headquarters,

but the branches of the business in different countries are in charge of
somewhat localizing the products and the marketing to fit the culture.
This adds the advantage of being able to offer somewhat tailored
products within different nations, but also adds increases the complexity
of having to produce and manage the different offerings.
MULTI-NATIONAL COMPANIES (MNCs)
Starbucks, where most of the menu is the
same, but offerings change based on local
tastes. Starbucks also customizes its locations
to the local culture, providing different
seating and setup to make local customers
more comfortable.

Honda, whose headquarters is in Japan,

but has established branches all over the
world. The product lineup varies by country
– for example, Honda trucks were developed
for the U.S. market.
GLOBAL COMPANIES

A global company, like a multinational company, has investment and

business in the countries in which it chooses to operate. Global
companies usually have subsidiaries in many nations, meaning
dozens of sites around the world. A global company, however, is
one where the central headquarters of the business makes the
decisions for driving the business, and the same product(s) are offered
in every country, regardless of local culture and tastes.

In this case, the branches can personalize the marketing of their

products to help drive sales, but the product catalog remains the same.
This allows the company to manage its foreign sales and to keep one
company culture and one set of goods for efficiency purposes, but
gives up the opportunity to tailor offerings to these local
markets.
GLOBAL COMPANIES

McDonald's restaurants are located across

the globe, and serve the same menu in all of
their locations. There is, of course, some
menu customization depending on the
location, which leans more toward the
multinational category, but at a high level,
McDonald's behaves like a global business.
TRANSNATIONAL COMPANIES (TNCs)
Transnational is a newer term, describing a business with heavy
operations in multiple nations. Transnational businesses become
incredibly complex, as each local branch has its own decision-making power,
its own markets and its own product selection. This type of worldwide
operation offers the most flexibility and versatility, but this comes at
the cost of streamlined management and product catalog.

General Electric, which has

Nestle, which has a headquarters, but
branches across the globe, many of
international branches make their own
which make their own decisions on
decisions regarding operations and
policy and business direction.
product offering.
Worldwide
Business
Post World
War
Worldwide Business
Post World War
American corporations operating internationally were at a great
advantage after the war for they had no competition. They had the
capacity to produce, organize and distribute products because America was not
devastated by the war.

Literatures officially traced the start of the contemporary market

integration from the return of the Japanese and European
corporations to the global market.

It was acknowledged in 1974 that the major global economic actors

were MNCs. Collectively, they were described to be a particular corporate
form to dominate global production and exchange ( Neubauer,2014 ). Caroll
(2003) termed the emergence of international, multinational, global, and
transnational companies in the United States (US), the European Union (EU),
and Japan as the triad – the major economies of the world.
Structural periods in the existence of global
corporations after the war
Gereffi (2001) identifies three structural periods in the existence of
global corporations after the war. The development of global corporations
can be examined from the sources and the levels of foreign direct
investments (FDIs).

1. Investment-based period (1950-1970)

In 1960, UN cited FDIs (The Unite Nations Conference on Trade and development
(UNCTAD) defines FDIs (Foreign Direct Investments) as funding made to acquire lasting
interest in enterprises operating outside the economy of the investor in which their
purpose is to gain an effective voice in the management of the enterprise
(UNCTAD,2011) as the major drivers of global corporate development and in 1990, FDIs
tripled (Hedley, 1999). With this, around 20,000 new corporate alliances were formed in
a span of two years (Gilpin,2000).
Structural periods in the existence of global
corporations after the war
2. Trade-based period (1970-1995)

During the trade-based period, global corporations were controlled by producer-driven

commodities. As a result, firms were characterized by large amounts of concentrated
capital focused on large-scale or capital-intensive manufacturing

3. Investment-based period (1950-1970)

More so, digital globalization affected the operation of global corporations since
technology became integrated in both production and consumption. Producer-driven
value streams have integrated their corporate structures to reduce the effects of time
and distance in the production and consumption of goods while buyer-driven value
streams have changed the behavior of corporations in retailing their goods and services
via internet (Neubauer,2014). As Cammett (2006) observed, designing, ordering, factory
processing, inventory, delivery, branding, and advertising are driven by digital operations
since the 1990s.
The ascent of global corporations is a reflection of a
globalized market integration. TNCs and MNCs are
no longer limited to their home countries. They can
expand their reach to other continents and countries.
 COMMON ATTRIBUTES OF
GLOBAL CORPORATIONS
These global corporations have common attributes. Neubauer (2014) identifies
three of them:
1. An agent of desired economic development
2. An economic prominence; and
3. A very powerful entity that can create crisis

These corporations may hit their target of economic development by making their
consumer products available in many parts of the globe (example: Nestle).

Some TNCs and MNCs were only able to reach their global annual growth target by
exploiting the environment. In the Asian Financial Crisis of 1997, global
corporations brought chaos to the economy of the Asian region by
controlling the foreign direct investments that resulted in the increase of real
estate values, aggressive government infrastructure projects and huge corporate
spending all funded by bank borrowings.

Overall, international financial institutions play an important role in the social and economic development programs of
developing and transitional nations. They are instrumental in the functionality of the global economy which is reliant
on global corporations.